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Boundedly rational search with positive search costs

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  • Stahl, Dale O.

Abstract

There is substantial evidence that humans make mistakes, and that this deviation from perfect rationality can have profound behavioral consequences. Since search theory plays a central role in economic models, it is imperative that the consequences of bounded rationality for search be studied. In this paper, worker bounded rationality is modeled as probabilistic choice, while employers are assumed to be perfectly rational. We find that worker welfare is non-monotonic in the precision of the workers. Offers are higher, and workers are better off with moderate levels of precision than with very low or with very high levels of precision.

Suggested Citation

  • Stahl, Dale O., 2018. "Boundedly rational search with positive search costs," Economics Letters, Elsevier, vol. 168(C), pages 138-140.
    • Handle: RePEc:eee:ecolet:v:168:y:2018:i:c:p:138-140
    DOI: 10.1016/j.econlet.2018.04.035
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    References listed on IDEAS

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    1. Michele Piccione & Ran Spiegler, 2012. "Price Competition Under Limited Comparability," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 97-135.
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    4. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    5. Simon P. Anderson & Jacob K. Goeree & Charles A. Holt, 2002. "The Logit Equilibrium: A Perspective on Intuitive Behavioral Anomalies," Southern Economic Journal, John Wiley & Sons, vol. 69(1), pages 21-47, July.
    6. Ernan Haruvy & Dale O. Stahl & Paul W. Wilson, 2001. "Modeling And Testing For Heterogeneity In Observed Strategic Behavior," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 146-157, February.
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    More about this item

    Keywords

    Bounded rationality; Search; Labor market;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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